Chancellor’s growth plans will create a ‘dynamic economy’ – if they materialise

The Chancellor’s plans to kickstart economic growth will help to create a more “dynamic economy”, experts said – if they become a reality.

In a major speech this morning, Rachel Reeves pledged to go “further and faster” on economic growth, confirming the government’s support for a third runaway at Heathrow Airport.

Alongside a range of other announcements, she also revived plans to develop the Oxford-Cambridge Arc, a ‘growth corridor’ connecting to the two university cities with the hope of creating “Europe’s Silicon Valley”.

Underpinning these proposals will be reforms to the planning system, which will make it easier for major pieces of infrastructure and housing developments to secure approval.

“There’s no point in announcing a third runaway at Heathrow if you’ve got the same planning system we have now because it would take decades,” she said.

“That is why it is different this time, because we’re reforming the planning system“.

Matt Swannell, chief economist adviser to the EY Item Club, said the Chancellor’s speech represented “a step towards a more dynamic economy”.

“Streamlining the UK’s planning process would get more shovels in the ground and direct the people, skills and capital into areas where there is high demand,” he said.

James Alexander, chief executive of the UK Sustainable Investment and Finance Association, agreed that reforms to the UK’s “prohibitively slow and opaque planning system” were essential.

Economists have long been calling for greater investment in the UK’s core infrastructure and housing stock.

Research from the Resolution Foundation suggests there has been no increase in the amount of built-up land per capita since 1990, in contrast to every other G7 economy.

Robert Covile, director of the right-wing Centre for Policy Studies, also welcomed the speech. “Those who want Britain to be a more prosperous and more dynamic country should cheer on every word,” he said.

But, Colvile said the Chancellor would still face difficulties in putting her rhetoric into action, pointing out that many governments have promised action on planning reform in the past.

Raoul Ruparel, director of BCG’s Centre for Growth, made a similar point. “Business has heard lots of this before, the hard part is pushing this through”.

The Budget, meanwhile, remains a major concern for firms. “The Chancellor’s support for growth comes off the back of a Budget that has done a huge amount to damage it,” Colvile said.

Recent business surveys suggest that firms are cutting staff at the fastest rate since the financial crisis, excluding the pandemic, due to measures announced in the Budget.

“The biggest barriers to growth in this country are Rachel Reeves, Keir Starmer and their job destroying Budget,” Mel Stride, the Shadow Chancellor said.

And while the measures were broadly welcomed among economists, many pointed out that large infrastructure projects take a long time to bear fruit even if they get past the planning system.

“Good growth policies need time, often many years, to take effect. The government is right to focus on this and to start now. It may be their successors who reap the rewards,” Paul Johnson, director of the Institute for Fiscal Studies (IFS) said prior to the speech.

Neil Birrell, chief investment officer at Premier Miton, said the measures would not “kickstart” growth.

“The investment outlined is for the long term, not the short term,” he said.

On the political side, Starmer and Reeves still face pressure on their relationship with the EU, from the increasingly ‘anti-Trump’ Lib Dems.

Daisy Cooper, Treasury spokesperson for the Liberal Democrats, argued that the Chancellor was refusing to go near the one policy which would make the biggest difference to boosting growth.

“If this government was serious about boosting growth, it would start negotiating a new UK-EU trade deal with a bespoke customs union at its heart,” she said.

But – perhaps unsurprisingly given the party’s powerful majority – some Labour backbenches report finding the government more muscular than anticipated.

Chris Curtis, co-chair of the Labour Growth Group, told City PM: “To be honest with you, on the backbenches of the Labour Party, we all came into politics for very different reasons, but none of what any of us want to achieve is possible unless we change from 14 years of growth disaster under the last government  into one where we’ve got a functioning economy again.”

He added: “What’s been interesting is we have been looking to push on very many campaigns but often the Chancellor’s got there before we’ve started campaigning… yes we’re pushing hard to get these changes, but often the government is completely willing to support them.”

And Tory voices warn of the risk of “promising rhetoric” being “betrayed by the government’s statist instincts”.

Sam Hall, Director of the Conservative Environment Network (CEN), warned: “The environment and economic growth are inextricably linked. Neither are well served by the status quo.

“But Reeves’ warm words risk being betrayed by the government’s statist instincts… higher taxes on businesses and electricity are dampening growth and slowing decarbonisation.

“If the Chancellor wants faster growth, the government must ditch its statist ideology and back a truly market-led approach to meeting our environmental goals.”